National buyers interested in complexes here

Louisville has moved onto the radar screens of national buyers, who see that the city has rebounded from the recession more quickly than other cities and who want to get into the market, said Aaron Johnson, vice president of investment for the Louisville office of Calabasas, Calif.-based Marcus & Millichap Real Estate Investment Services.

Buyers on the coasts generally are interested in larger complexes with at least 100 units, he said. And they don’t have to be of recent construction.

“Put up (for sale) any halfway decent location, and you will just have a ton of national offers,” he said.

He thinks there’s as much interest from national buyers as there ever has been — maybe even more.

He recently represented the sellers of the 158-unit Heritage Hills apartments and the 90-unit Shelby Crossing apartments, both of them off Shelbyville Road near Middletown.

Some of the Heritage Hill apartments were built in the 1980s and half in the ’70s, he said, and all the Shelby Crossing apartments were built in the 1970s.

Heritage Hill was purchased by 201 Heritage Hill LLC, an entity based in Richmond, Va., for $10.5 million on April 1.

Shelby Crossing was purchased by a group of New York investors for $5.58 million.

Heritage Hill’s sale price equates to $66,500 per unit, and Shelby Crossing sold for $62,000 per unit, Johnson said.

Both prices were close to the $69,000-per-unit price that was paid in September 2012 for 326-unit Vieux Carre Apartments at Hurstbourne Parkway and Shelbyville Road.

That was the most ever paid in Louisville for a 1970s-era complex, Johnson said.

“That shows you the strength of that submarket,” he said.

The good prices that apartment complexes have fetched have prompted more complex owners to enter the market, said Craig Collins, senior real estate adviser for Commercial Kentucky Inc.

But there still is more demand from buyers of complexes than there is a supply of complexes for sale, he added.

That’s good news for the owners of the complexes.

“The best news for owners is that they are able to increase rent in the Louisville market by about 4 to 5 percent on an annual basis,” he said. “That has increased their cash flow, and their businesses are running more efficiently now.”

According to Integra Realty Resources Kentucky–Southern Indiana LLC, the average two-bedroom apartment in the Louisville area rents for $713 per month.

A complex of 200 units would produce a revenue stream of $142,600 per month or $1.7 million per year.

Financing available for apartment complex purchases

One factor sustaining the boom in sales of apartment complexes is the availability of financing, which has been driven by low interest rates.

But in the past few weeks, interest rates have started to rise, and that has prompted some buyers to reprice bids they have made, Collins said. “They are not as aggressive in their pricing,” he said.

Borrowers still can borrow cheaply enough to make a purchase worthwhile, Johnson said, and he expects that to be true for at least another six months.

But sale prices will fall if interest rates continue to rise, he added.

“If we get a 2 percent jump (in interest rates), all the sellers for choice are gone,” he said, referring to sellers who are not being forced to sell their complexes for some reason.

But Johnson has made some sales recently in which the borrowers paid cash because out-of-state lenders are reluctant to lend money to buy older complexes.

For example, last month he represented the seller in the sale of the 40-unit Capri Arms and 48-unit Sans Souci complexes for $2.6 million in an all-cash deal, he said.

Those complexes, both of them older complexes, are on Goldsmith Lane, and the per-door price was $29,500.

Even with interest rates trending up, “that was still an excellent price for the seller,” he said.

Local apartment sales

Several apartment complexes have sold this year in the Louisville market. The total value of those deals is $64.28 million. The total number of units involved in the transactions is 2,010.

Complexes sold so far in 2013 include the following:

• Colonial Oaks Apartments, 192 units on Colonial Oaks Drive, off Southside Drive, sold for $4.32 million in June;

• Capri Arms and Sans Souci, 88 units on Goldsmith Lane, sold for $2.6 million in June;

• Autumn Run, 204 units on Goldsmith Lane, sold for $2.6 million in May;

• Shelby Crossing, 90 units on La Fontenay Court, Middletown, sold for $6.1 million in May;

• Heritage Hill, 158 units on Heritage Hill Trail, Middletown, sold for $10.5 million in April;

• Yorktown Apartments, 362 units at 7103 Yorktown Road, off National Turnpike, sold for $4.36 million in March;